By Jeff McClean
You spend all day underwriting businesses, and you’re good at it. Then you look at your own balance sheet and find a high income and a large number on paper, with very little cash flow you can touch. That is where most venture capital and private equity professionals are when they first call us, which is why our planning starts with an illiquidity conversation rather than a standard investment portfolio.
What you lack is flexible cash, because most of your net worth is tied up in the same asset class you work in every day.
Strong on Paper, Almost Nothing You Can Reach
Your compensation comes in two forms: the first is cash from the management fee, which arrives predictably on schedule; the second is carried interest, which represents your share of the fund’s profits. Carry only pays out if the fund succeeds above a certain hurdle rate, and only after investments are finally sold, which might take anywhere from seven to fifteen years.
This dynamic creates the ultimate version of the HENRY problem: high earners with plenty of income on paper but very little liquid wealth in the bank (HENRY stands for High Earner, Not Rich Yet). While a startup founder might face illiquidity for a stretch before an eventual exit, your money is tied up almost continuously, and the waiting period simply resets with every new fund.
The Number That Hasn’t Arrived Yet
Your salary and bonus from the fund management fee cover your current lifestyle. Your carry is meant for a future you can’t schedule, and the larger of those two numbers is just a projection.
Here’s the trap: you build a mental balance sheet that includes expected carry and start spending against it. The house gets bigger and the tuition payments grow. Suddenly you have committed money that hasn’t cleared your account yet.
Look at what’s happening in our own backyard. Across the Utah venture and private equity market, fund portfolio companies outside of artificial intelligence have seen valuations fall hard. Partners who once counted certain positions as wins no longer count them that way.
Nothing about their original judgment changed, and the market moved out from under them anyway. Liquidity remains tight and exits rarely happen on a neat timeline, as I’ve noted in Navigating Venture Capital Opportunities.
Here is the discipline I would push for. Build your life entirely on cash that’s already arrived in your account, and treat expected carry as a bonus that you do not include in the financial plan, but you still account for in your tax planning conversations.
The Money You Owe Your Own Fund
Firms require their investment professionals to put personal money into the funds they manage, alongside outside investors. This alignment is a good thing, but it also creates an obligation that grows every time your firm raises a new vehicle because a new fund doesn’t replace the old one; it simply stacks on top of it. Capital calls arrive on the fund’s schedule rather than your family’s, meaning cash has to sit ready and uninvested, sometimes for years.
Plenty of professionals borrow to meet those calls, and that’s where things get complicated. Those loans are often backed by the portfolio’s anticipated value. If market conditions shift and a company’s valuation drops below what the loan was based on, selling it can trigger a sudden call on the loan itself.
Instead, firms hold on to assets rather than selling at a discount. This produces a set of zombie firms, unable to sell anything without setting off the loan problem I just described. It shows up more in private equity than in venture, as I wrote in Is Private Equity Still Worth It? For you, it means your liquidity and returns can arrive late for reasons that have nothing to do with your own financial planning.
A Barbell With Nothing in the Middle
We organize financial planning around five buckets: cash, fixed income, core equities, real estate, and venture capital or private equity. You can see how we build that, and every family we work with has some version of it.
Your balance sheet as a VC or PE partner looks more like a barbell. Heavy cash sits at one end because you need it ready for capital calls and because it provides a safety net.
At the other end sits venture and private equity through your job, your carry, and the personal capital you commit to each new fund.
The three buckets in the middle, the ones most families rely on for stability and reliable income, remain practically empty by default rather than by choice.
Building out those missing pieces is where the real planning work happens.
Trading Fees for a Larger Share of the Upside
Some firms let professionals trade a portion of their current fee structure or management cut for a larger share of future fund profits. On paper, it looks appealing: you give up income today to claim a bigger number down the road.
Before you make that trade, ask a question that has nothing to do with the spreadsheet: How much of your family’s future should depend on a single firm, especially when that same firm already pays your salary and holds both your carry and your committed capital?
Every dollar you route through that choice adds weight to an already heavy end of the barbell. That doesn’t make it a bad trade, and some of the best outcomes I have seen came from professionals who took it. But look at your entire balance sheet before you commit and take into account the downside risk.
The Tax Planning Window Opens Earlier Than You Think
Your carry has very little taxable or market value the moment it’s granted, which is precisely when planning around it offers the most flexibility and the lowest cost. Most professionals I talk to wait years to address it, long after the valuation has climbed, and by then the choices are narrower and more costly.
Where We Come In
You don’t need an advisor to explain how an investment fund works. What often is missing is someone paying attention to everything outside your office walls, from the cash sitting idle against future calls to the empty middle of a balance sheet nobody has had time to fill.
If any of this sounds like your situation, we would welcome the conversation. Reach out to us at info@solidaritywealth.com or call 385-374-1665 to schedule a discovery call.
Frequently Asked Questions
Why do venture capital and private equity professionals feel cash-poor despite a high income?
Because most of their net worth sits in carried interest, which pays only after the fund sells its investments. Cash pay covers current living costs while the larger number stays locked up for years. High earners in other fields hit a similar visibility problem with their money.
What is a fund commitment, and how does it affect my personal cash flow?
A fund commitment is the personal money a firm requires its investment professionals to put into the funds they manage. Each new fund adds another commitment on top of the last, and the capital is called on the fund’s timetable, so your cash must sit ready instead of working somewhere else.
What should venture and private equity professionals own outside their own funds?
Usually the middle of the portfolio, which is the part their job leaves empty:
- Outside income sources for stability.
- Liquid publicly traded companies for growth they can sell.
- Real estate for income.
When should I start planning around carried interest?
Early in a fund’s life, while the carry still has little value. Planning is most flexible and least expensive at that point, and waiting until a fund has performed narrows the choices and raises the cost. The Solidarity Wealth team coordinates this alongside tax and estate work.
About Jeff
Jeff McClean has advised some of the country’s most successful families on all aspects of their wealth for over a dozen years. With his background as a former tax and estate planning attorney at a prominent Houston, Texas, law firm, Jeff has advised clients through business sales, funding rounds, IPOs, complex tax and wealth planning transactions, private and public market investments, executive compensation packages, succession planning, and much more.
Solidarity Wealth is a registered investment adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Solidarity Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Solidarity Wealth unless a client service agreement is in place.
